WASHINGTON - President Barack Obama told Prime Minister Benjamin Netanyahu the U.S. will soon present a new peace initiative to include Arab nations alongside Israel and the Palestinian Authority in peace negotiations. The two met at the White House yesterday, including one hour and 45 minutes with no one else present.

Obama pressed for a two-state solution to the Mideast conflict, but failed to win a public commitment from Netanyahu on Palestinian statehood.

In their first White House talks, Obama also urged Netanyahu to freeze construction of settlements, but sought to reassure Israelis wary about his overtures to Iran, saying he would not wait indefinitely for diplomatic progress on curbing Tehran's nuclear ambitions.

As part of its new peace initiative, the U.S. administration will encourage Arab states to take steps to normalize their relations with Israel immediately and not wait to the end of the peace process, as the Arab peace initiative proposes. After the meeting, the two leaders were joined by aides for lunch and further meetings for four hours.

"It is in the interests not only of the Palestinians but also the Israelis, the United States and the international community to achieve a two-state solution," Obama told reporters with Netanyahu sitting beside him in the Oval Office.

Netanyahu reiterated that he supported self-government for the Palestinians but made no mention of a state.

Obama sees engagement in Israeli-Palestinian peacemaking - in contrast to the Bush administration's largely hands-off approach - as crucial to repairing the U.S. image in the Muslim world and convincing moderate Arab states to join a united front against Iran.

There have been signs Obama hopes to sway Netanyahu with the prospect of normalized ties between Israel and all Muslim countries, but such a deal would require extraordinary diplomatic work by the United States.

With Israeli leaders mostly skeptical of Obama's efforts to engage Iran diplomatically, Netanyahu had planned to stress Israel's growing concerns about Tehran's nuclear program. Israel has not ruled out military strikes against Iran if diplomacy fails.

Obama set a rough timetable for his diplomatic outreach to Iran for the first time yesterday. "The important thing is to make sure there is a clear timetable," he said. "By the end of the year we should have some sense whether or not these discussions [involving Iran] are starting to yield significant benefits."

Obama also said he was not closing off a "range of steps" against Iran, including sanctions, if it continues its nuclear program, which Washington believes is aimed at producing an atomic weapon but Tehran says is for peaceful purposes.

He also held out the prospect of tougher sanctions against Tehran "to ensure that Iran understands we are serious."

Obama stressed that attempts by the Bush administration to isolate Iran had failed, "so what we are going to try to do is do something different."

He said he hoped to begin negotiations with Tehran soon, after Iran holds elections next month. Iran's leaders have so far rebuffed his efforts to reach out to them and toughened their rhetoric.

Obama said both Israel and the Palestinians would have to meet their obligations under the 2003 U.S.-sponsored Middle East road map.

The plan, widely ignored by both sides, calls on Israel to halt settlement expansion and for the Palestinians to rein in militants.

Despite diverging views, Obama and Netanyahu appeared to have avoided any fireworks.

After a joint statement, Netanyahu spoke to Israeli reporters at the president's guesthouse at Blair House, saying that "it was a good meeting, friendly. There was a deep commitment to relations with the U.S., with whom we have a special relationship."

"Another thing was Iran, a topic that consumed most of our private one-on-one meeting. It was clear that he [Obama] understands the extent of the problem, for the world as well as for us, and he is committed to preventing Iran from gaining nuclear weapons."

He added that "in regard to the settlements, we decided that this is something that needs to be implemented through commitments on both sides. Israel has dismantled settlements and the Palestinians were supposed to dismantle terror infrastructure. In Gaza, we dismantled settlements and got a huge terror infrastructure in return."

Kadima politicians attacked the outcome of the Netanyahu-Obama meeting.

"It's a shame that Israel's biggest expert in understanding American political culture failed when he tried to tempt President Obama with meaningless words, and missed the opportunity to create relations based on trust, just as he is about to miss out on the historic opportunity the president mentioned," said MK Ze'ev Boim.

Abbas aides said Obama's commitment to a two-state solution was encouraging.

But Saeb Erekat said that while Netanyahu expects the Palestinians to achieve self-rule, "how is that possible while the occupation continues?" He said the key was the ending of construction in the settlements.

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